Whether you’re running a business in Alabama or you’re a local customer, understanding the state’s surcharging laws is a must. Merchants need to know these laws to ensure compliance, and consumers should know them to avoid getting ripped off.
Here’s what you need to know about Alabama’s surcharge laws:
- Surcharge fees are legal on credit card transactions.
- Debit card surcharging remains illegal (as it is nationwide).
- Federal limits (4% maximum) and card network rules still apply.
- Surcharge fees are subject to state sales tax in Alabama.
Read on for the full scoop.
Disclaimer: This information is provided for reference only and does not constitute legal advice. For specific legal guidance, consult with an attorney.
Alabama Merchants Can Legally Add Surcharge Fees to Credit Card Transactions
There are no state-specific laws in Alabama that restrict or prohibit merchants from implementing surcharge fees, which means businesses statewide can simply default to federal guidelines and card network rules.
At the federal level, surcharge fees on credit cards are capped at 4% of the transaction amount.
However, credit card networks have their own rules that effectively limit most surcharges to 3% of the transaction.
While violating the card network rules doesn’t break any “laws” in the legal sense, charging more than 3% (but less than 4%) can still result in hefty fines and penalties from Visa, Mastercard, Discover, and American Express.
Debit Card Surcharging is Illegal
Alabama businesses need to understand that debit card surcharging is 100% illegal.
Surcharging is only allowed on credit cards.
This isn’t an Alabama-specific law. It’s a federal law that applies to businesses nationwide.
Even if the debit card transaction is run as a “credit” and routed through the card networks, you still can’t add a surcharge fee (despite your processing costs being higher).
State and Local Governments Can Also Impose Surcharge Fees in Alabama
Interestingly, Alabama state law actually authorizes government entities to impose surcharges on credit card transactions.
According to Alabama Code 41-1-60, state officers and agencies can accept credit card payments and impose surcharges or convenience fees to offset processing costs.
The law explicitly states that when someone chooses to pay by credit card and a surcharge is imposed that the fee is voluntary and non-refundable.
Alabama Code 11-1-103 similarly states that county and municipal governments can impose surcharge fees on credit cards as long as the fee itself doesn’t exceed the transactional costs imposed by the processors.
These types of laws are common in states where surcharging is legal.
Federal Laws and Card Network Rules Still Apply
Even though Alabama doesn’t specifically restrict merchants from adding surcharge fees to transactions, you still need to comply with federal laws and card network rules if you decide to implement a surcharge program.
Here’s what that means:
- 4% federal cap on surcharge amounts.
- Surcharging is not allowed on debit cards or prepaid cards (including SNAP).
- Card networks effectively cap surcharge fees at 3% and require uniform application across all card types.
- Clear disclosure of the surcharge fee and amount is required before customers complete transactions.
It’s also worth noting that card networks typically require 30 days’ advance notice before you begin surcharging.
You can contact your processor about specific notification requirements. Just be aware that some processors provide outdated or incorrect information about surcharging compliance, so it’s ultimately on you to verify what needs to be done.
Alabama Sales Tax Applies to Surcharge Fees
One unique aspect of Alabama’s approach to surcharging is that credit card transaction fees are subject to state sales tax (assuming the transaction itself is taxable).
According to the Alabama Department of Revenue, surcharge fees should be included in the seller’s gross sales when calculating taxes due.
For example, if a merchant sells a product for $100 and adds a 3% surcharge fee when the customer pays with a credit card, the total price of $103 is subject to Alabama sales tax.
But if the transaction isn’t taxable (like a haircut or salon service), then the 3% fee is not subject to tax (because these types of services don’t have state sales tax in Alabama).
This is a really important consideration for Alabama businesses when calculating their tax obligations, and another instance that conveys how surcharging isn’t always so straightforward — even in states where surcharging is legal.
Read More: 11 Reasons Why Businesses Should NOT Surcharge
Alabama ABC Board Implements Wholesale Surcharging
In a recent move that sparked some controversy among business owners, the Alabama Alcoholic Beverage Control Board began charging a credit card processing fee to wholesale customers on July 1, 2025.
The ABC Board implemented a roughly 2% fee on wholesale transactions paid via credit card, which is a direct pass-through fee being charged by the board’s credit card processor.
This real-world example highlights an emerging (and somewhat alarming) trend as surcharging practices have moved into B2B and wholesale transactions.
Unlike consumer purchases where customers typically have plenty of alternatives and can shop elsewhere, wholesale buyers have limited options, especially when purchasing from a state-controlled board with a monopoly on distribution.
How to Report Illegal Surcharging in Alabama
For consumers in Alabama who encounter undisclosed surcharges, surcharges that exceed 4%, or surcharges applied to debit card transactions, complaints can be filed directly with the Alabama Attorney General’s Consumer Protection Division.
You can fill out the complaint form online.
Or call the consumer hotline at 1-800-392-5658 or 334-242-7335.
And while we don’t offer any consumer-specific services here at MCC, we’d still like to hear about your surcharging experiences in Alabama. So drop a comment and let us know if you’ve paid a surcharge fee when paying with a credit card and how you feel about it.
Should Your Alabama Business Surcharge?
Just because surcharging is legal in Alabama doesn’t mean that it’s the right choice for your business.
Recovering 3% of your processing costs might seem like a solid option in theory, but the actual impact on your business could be a big problem.
Customers hate surcharge fees. They view surcharges as an extra and unexpected cost that makes them feel penalized for using their preferred payment methods.
In a state like Alabama where consumers are already cost-conscious, this extra could potentially result in lost customers for your business.
Is that something you can really afford? Recouping those few extra dollars probably isn’t worth it in the long run.
Read More: Pros and Cons of Surcharging
Better Alternatives to Surcharging in Alabama
Surcharge fees aren’t the only way to reduce or offset your processing costs. Here are some surcharging alternatives to consider for your Alabama business:
- Audit Your Statements — Most businesses overpay for payment processing due to hidden fees, inflated rates, or padded assessments.
- Negotiate Better Rates — You don’t need to switch processors to save money, as you can always negotiate better terms with your current provider if you know what to ask for.
- Optimize Your Processing Setup — Small tweaks like prioritizing card present transactions, upgrading your equipment to avoid downgrades, and submitting extra data on B2B transactions can result in lower costs at the interchange level.
You can also just raise your prices to account for credit card processing fees.
When your utilities bill increases, you don’t add a new line item to your receipts with a “utility fee” surcharge, do you?
Credit card processing is just another business operations expense that needs to be accounted for when setting your prices. Not something passed along to your customers in the form of a separate fee.
If you want to lower your processing costs without switching providers or surcharging your customers, contact our team here at Merchant Cost Consulting for assistance. We’ll give you a free statement audit to see how much you can save today.